CH.19 Using Securities Market

If a company issues a $1,000 bond with an interest rate of 2 percent and a maturity date of 2040, how much interest does the company pay and for how long?

$20 each year until a specified date in 2040 when the bond must be paid in full.

What influences the bond interest rate that businesses must pay?

Interest rate paid by U.S. government bonds

______ stockholders have no voting rights in a firm. (one blank/one word

Preferred

When a stock is sold at a higher price than that for which it was purchased, it is called a:

capital gain

Mutual fund managers pick what they consider to be the best stocks and bonds available and help investors:

change investments more easily diversify their investments

Collections of stocks and bonds that are traded on exchanges but are traded more like individual stocks than like mutual funds are _____-_____ funds

exchanged traded

Shares of ownership in a company are called ______.

stocks

If a company issues a $1,000 bond with an interest rate of 5 percent and a maturity date of 2020, what is the company agreeing to pay the bondholder?

A total of $50 interest each year until a specified date in 2020, when it must repay the full $1,000

The Dow Jones Industrial Average is the average cost of _____ selected industrial stocks

30

The Dow Jones Industrial Average is the average cost of ______.

30 selected industrial stocks

Which of the following are advantages to the organization of issuing bonds? (Select all that apply) Bondholders can force payment of interest on time. Bond interest is tax deductible to the firm. Bondholders are creditors of the firm, not owners. Bonds increase debt that can be difficult to repay on time.

Bond interest is tax deductible to the firm. Bondholders are creditors of the firm, not owners.

_____ stock has voting rights, whereas ______ stock does not.

Common; Preferred

List the steps in investing in stocks and bonds from beginning to end with the first step at the top of the list. Instructions Choice 1 of 4. The stockbroker negotiates a price and places an order. toggle button The stockbroker negotiates a price and places an order. Choice 2 of 4. Decide that you want to buy stocks or bonds. toggle button Decide that you want to buy stocks or bonds. Choice 3 of 4. Find a stockbroker. toggle button Find a stockbroker. Choice 4 of 4. The trade is reported to your broker, who then notifies you. toggle button The trade is reported to your broker, who then notifies you.

Decide that you want to buy stocks and bonds Find a stockbroker The stockbroker negotiates a price and places an order The trade is reported to your broker, who then notifies you.

Which statements represent disadvantages of issuing additional shares of stock? (Select all that apply) Issuing stock generally increases the market value of the firm on the balance sheet. Dividends are not tax deductible. It can shift control of the firm. Firms' lose the right to retain any earnings.

Dividends are not tax deductible. It can shift control of the firm.

Which statement about preferred stock is correct?

Preferred stockholders get company dividends before common stockholders are paid.

What is an organization whose members can buy and sell securities for companies and individual investors?

Stock exchange

______ are shares of ownership in a company.

Stocks

_______ are shares of ownership in a company.

Stocks

True or false: The bond issuer pays interest to the bondholders in order to compensate them for the use of their money.

True, Interest compensates bondholders for the use of their money.

What is a junk bond?

a bond that is high-risk, high-interest

A corporate certificate indicating that an investor has lent money to a firm is called a

bond certificate

The first step to take in investing in the securities market is to ______.

decide what stock or bond you want to buy

Preferred stock differs from common stock in that it ______. (Select all that apply) does not usually have voting rights pays dividends to preferred stockholders first pays a fixed dividend is kept secret within the corporation

does not usually have voting rights pays dividends to preferred stockholders first pays a fixed dividend

What is a stock certificate?

evidence of stock ownership

Securities markets are financial marketplaces ______.

for buying and selling stocks, bonds, and other investments

Stocks of corporations in emerging fields such as technology and biotechnology or Internet-related firms, whose earnings are expected to grow at a faster rate than other stocks, are referred to as ___ stocks

growth

Growth stocks are sold by corporations that:

have earnings that are expected to grow at a faster rate than other stocks

Stocks of public utilities are considered income stocks because of their:

high dividend yield

Stocks of public utilities are considered _____ stocks because they usually offer investors a high dividend yield that generally keeps pace with inflation.

income

A _____ fund may reflect a group of large companies, small companies, emerging countries, or real estate.

index

A bond's ____ rate is sometimes called the coupon rate.

interest

The ____ rate paid by U.S. government bonds influences the bond interest rate that businesses must pay.

interest

What is the payment that the issuer of the bond makes to the bondholders for use of the borrowed money?

interest

Specialists who assist in the issue and sale of new securities are called _______ bankers

investment

A typical mutual fund:

invests in both stocks and bonds

Some investors look for higher returns through riskier bonds called ______ bonds.

junk

Mutual fund ______ are specialists who pick what they consider to be the best stocks and bonds available.

managers

The date that the face value of a bond is to be repayed to the bondholder is called the ______ date.

maturity

The exact date the issuer of a bond must pay the principal to the bondholder is called the _____ date

maturity

A fund that buys stocks, bonds, and other investments and sells shares in those securities to the public is called a

mutual fund

Curbs and circuit breakers are mechanisms used to restrict ______.

program trading

When investors give computer instructions to sell automatically to avoid potential losses if their stock price dips to a certain point, it is called:

program trading

The Securities and Exchange Commission is responsible for ______.

regulating various stock exchanges

Investment bankers are specialists who assist in the sale of new ____

securities

What is it called when you sell a bond above its face value?

selling it at a premium

Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued is called a(n) ______ certificate.

stock

The Securities and Exchange Commission is the federal agency that has responsibility for regulating ______.

stock exchanges

Preferred stockholders are given preference over common stockholders in ______. (Select all that apply) voting rights exercising preemptive rights the claim on company assets the payment of dividends

the claim on company assets the payment of dividends

What are capital gains?

the positive difference between the purchase price of a stock and its sale price

What is a blue-chip stock

a stock that pays regular dividends and generally experiences consistent stock price appreciation

What information does the DJIA give investors?

an indication of the rise and fall of the stock market over time

Stocks issued by higher-quality companies such as Coca-Cola, Johnson & Johnson, and IBM are referred to as ____-chip stock

blue

A ______ is a corporate certificate indicating that an investor has lent money to a firm (or a government).

bond

An advantage of using ____ is that they can be repaid before the maturity date if they are callable.

bonds

An advantage of issuing bonds is that ______.

bonds do not affect owners' control

The members of a stock exchange such as the NYSE ______. (Select all that apply) sell over the counter regulate currency exchange rates buy securities for companies and individuals sell securities for companies and individuals

buy securities for companies and individuals sell securities for companies and individuals

What do you call collections of stocks and bonds that are traded on securities exchanges but themselves are traded more like individual stocks than like mutual funds?

Exchange-traded funds

True or false: First-time investors in bonds should know that bonds must be held until their maturity date.

False, Bonds do not have to be held until maturity; they are bought and sold daily on major securities exchanges.

True or false: Corporate bonds are usually issued in units of $100.

False, units of $1000

______ are very low cost, easy to obtain, and can be held by investors for a long period of time; they may focus on large companies, small companies, emerging countries, or real estate.

Index funds

Which statements represent advantages to a company issuing stock? (Select all that apply) The stock price never has to be repaid to stockholders, since they become owners in the company. The company incurs no debt, so it may appear financially stronger. There is no legal obligation to pay stock dividends. Stockholders become owners of the firm and can affect its management by voting for the board of directors.

The stock price never has to be repaid to stockholders, since they become owners in the company. The company incurs no debt, so it may appear financially stronger. There is no legal obligation to pay stock dividends.

What are the functions of securities markets?

They provide long term funding for businesses and a place for investors to buy and sell stocks and bonds